Most plants do not have a single report labeled "quality cost." The numbers live in scrap tickets, rework logs, labor records, and the returns desk. Collecting them is mostly arithmetic once you know the unit costs. Scrap cost is the number of units scrapped multiplied by the cost of each unit at the stage it was scrapped. A bare board costs less than a fully populated and tested one, so use the right stage.
Rework cost is labor time multiplied by a loaded labor rate, plus any replacement components. Loaded labor rate means the hourly wage plus benefits and overhead, usually a figure finance can give you. Record rework minutes per board, not just a count of reworked boards, because a 2-minute touch-up and a 20-minute component replacement are very different costs.
Warranty and return costs come from the customer service or returns desk. For each return, add the replacement unit cost, outbound and inbound freight, the technician time to diagnose it, and any credit given. Many plants settle on an average cost per return after sampling 20 or 30 cases, then multiply by the monthly return count.
Standard Procedure
- 1Get standard unit costs for each production stage from finance.
- 2Total scrap quantities by stage from scrap tickets and multiply by the matching unit cost.
- 3Total rework minutes from rework logs, convert to hours, multiply by the loaded labor rate, and add replaced parts.
- 4Multiply the month's warranty return count by the average all-in cost per return.
- 5Add scrap, rework, and warranty to get the month's measured failure cost.
Lesson Summary
- ✓Scrap, rework, and warranty are the three failure numbers almost every plant can collect in a month.
- ✓Use loaded labor rates and stage-appropriate unit costs or the total will be far too low.